Chapter 18: Nexus of Debt Financing, Investment and Policy Intervention: Impact of Covid-19 Pandemics on CAREC Member Countries

The core objective of this study is to examine the impacts of various modes of financing on investment in industrial assets, fiscal resources in public sector, and GDP growth. The main focus of this study is the countries that belong to Central Asia Regional Economic Cooperation (CAREC) and Economic Cooperation Organization (ECO). For identification of the determinants of investment, fiscal resources, and GDP growth, the methodology is based on three simultaneous equations, estimated by the Pooled Ordinary Least Square (OLS) technique. The most important result is the significant positive impact of domestic credit to private sector on public sector fiscal resources, while it negatively affects the GDP growth and investment in non-financial assets. The significant betas associated with this variable indicate that bridge financing can improve the fiscal position of a government as it ensures the higher tax collection. This relation may be based on the survival and perpetuity of businesses through credit financing facilities during difficult period which ultimately ensures the higher tax collections by the governments. It justifies the significant role of credit financing to support the economic and business activities during the lock down period.